Image source: Wikipedia

The Federal Reserve has removed reputational risk from its official bank supervision guidelines. This decision marks a shift toward financial risk as the primary basis for regulatory examination. The Fed finalized the revision on June 23, 2025, through updated internal ratings guidance.

The Federal Reserve Board announced that it will no longer include reputational risk as a component of its bank supervisory examination programs. The Board has begun removing references to reputational risk from its supervisory materials and, where appropriate, replacing them…

— Wu Blockchain (@WuBlockchain) June 23, 2025

This change comes amid growing criticism of how reputational risk enabled subjective enforcement. Market participants linked the term to biased banking practices, especially during the crypto debanking wave. The Fed becomes the last of the major U.S. regulators to eliminate reputational risk references.

The Fed confirmed that its examiners will now follow new training focused on objective, financial risk-based assessments. This includes updates to manuals, rating systems and examiner training programs. It aims to ensure consistent application across all state member banks and holding companies.

Shift Follows Debanking Scrutiny Across Crypto Firms

For years, banks used reputational risk as grounds to limit or terminate accounts tied to cryptocurrency activities. Critics said this approach lacked transparency and encouraged discriminatory practices. As debanking incidents rose, the crypto sector pressed lawmakers and regulators to intervene.

The Fed’s latest decision responds directly to those pressures by removing a vague and misused supervisory concept. During the debanking fallout, institutions cited reputational exposure as justification to exit crypto relationships. That practice created compliance uncertainty and undermined financial inclusion.

Removing reputational risk aligns Fed policy with other agencies that have already revised their examination criteria. The focus will remain on quantifiable risks like liquidity, credit and operational vulnerabilities. The Fed says this shift will enhance clarity and accountability in bank supervision.

New Risk Management Ratings Now Govern Fed Oversight

The revised guidelines instruct examiners to assess risk management through updated financial metrics and control systems. These new standards apply across institutions regardless of size or business model. Risk ratings will emphasize internal controls, governance and exposure management.

The Fed has assigned risk ratings as part of its CAMEL and BOPEC frameworks. Those frameworks will no longer incorporate reputational risk components in management assessments. The changes apply to both domestic banks and foreign firms operating under U.S. licenses.

While reputational risk is no longer a formal component, banks can still consider it internally. The Fed clarified that institutions may retain reputational risk tools within their frameworks. However, supervisors will no longer base regulatory actions on that subjective metric.

Fed Ensures Broad Implementation Through Examiner Training

The Fed has started examiner retraining and material revisions across all Reserve Banks. It will coordinate with other federal regulators to promote uniform standards. These steps aims to avoid fragmented supervision across agencies.

The Fed stated that its core expectations around sound risk management remain unchanged. However, it now places stronger emphasis on direct financial exposure rather than perceived public image threats. This reflects a modernized understanding of bank safety in fast-evolving markets.

More By This Author:

The Week Ahead: Fed Chair Powell Testimony Comes As U.S. Strikes Iran Targets
Amazon.com, Inc. Stock: Expands Healthcare Reach In India And Warns Of AI-Driven Job Cuts
Tesla Inc. Stock: Eyes $2 Trillion Valuation On Robotaxi Launch Hopes